Construction Finance: Why Pooled Mortgage Funds Work

This article was originally published by The Urban Developer on 01 April, 2021. It is reproduced here in full without amendment. 

Construction Finance | Why Pooled Mortgage Funds Work | Trilogy Funds

There is no doubt the Australian property market is currently booming, with high demand for residential and industrial properties.

The head of lending with property fund manager Trilogy, Clinton Arentz, said it was no secret many key regional areas were performing the best they had in years, with strong demand for house and land packages, prestige housing, and apartments and townhouses.

“Despite near-record supply, elevated demand from the online shopping space has supported the stability of the rental market, creating an attractive prospect for new industrial projects as well,” Arentz said.

According to JLL, Australia’s industrial investable universe is growing, with approximately AUD 96 billion in value and estimated to reach AUD 120 billion in value by 2025.

For developers looking to finance residential and industrial projects, particularly during times when the market is moving quickly, Trilogy recommends considering the advantages of pooled mortgage funds over contributory mortgage funds for readily-available project finance.

Contributory mortgage funds raise capital for specific projects and loans on a case-by-case basis, and with some trusts, a drawdown-by-drawdown basis.

A contributory fund is typically open until investors have invested enough capital to fund a loan and take mortgage security over a single asset. In some cases, further capital raises are required from those same investors each time the project requires additional funds for drawdowns.

Contributory funds also tend to face liquidity issues, significantly higher concentration risk, and generally speaking, higher capital requirements can act as a barrier to entry.

On the other hand, open-ended pooled mortgage funds, such as Trilogy’s Monthly Income Trust, raise funds for loans across a portfolio of projects and remain open for new investment inflows.

This continual inflow of funds from investors and income from the loans in the portfolio, combined with proactive liquidity management, means Trilogy can continually extend project finance to both existing and new borrowers.

“After receiving a loan application, our team is able to turn around an indication of support and proposed terms typically within 48 hours, subject to the completeness of the loan application,” Arentz said.

“Having availability of funds also ensures each drawdown is met on time throughout the life of a property development or construction project.

“This frees developers up to focus on progressing their project rather than worrying about whether their financier will have the funds available to pay their next drawdown.

“As a pooled fund with a portfolio of loans, it also means that there is more flexibility to meet changing circumstances of individual projects where required.”

Trilogy specialises in construction loans ranging from $3 million to $25 million for developments such as apartments, townhouses, land subdivisions, industrial complexes, prestige homes, service stations, commercial buildings, house and land packages and completed stock.

One recent project tapping into the strength of the residential market and the demand for quality residential buildings is a 39-apartment complex being undertaken by an experienced developer in Benowa, on Queensland’s Gold Coast.

The approved loan amount was around $14.3 million over an 18-month term with an approved loan-to-value ratio of 65 per cent of the gross realisable value, including GST.

Arentz announced Trilogy had recently dropped its interest rates now starting from 6.95 per cent pa for property development and construction loans, and from 4.95 per cent pa for completed stock loans. Subject to terms and conditions.

Trilogy has experienced portfolio managers in Brisbane, Sydney and Melbourne.


 

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